Wal-Mart Forms Joint Venture to Open Stores in India

Wal-Mart Stores signed a much-delayed agreement on Monday that gives the world's largest retailer a foothold in the fast-growing but highly controlled Indian market.

The equal joint venture, Bharti Wal-Mart Private, is for cash-and-carry, or wholesale, and back-end supply chain management, the companies said in a statement.

"We are pleased to be a partner in developing this sector which is set to become a significant engine of India's economic growth," Bharti Chairman Sunil Mittal said.

India's retail industry, valued at nearly $350 billion, is forecast to double in size by 2015, with modern retail's share of that also quickly increasing from about 3 percent now.

India allows foreign single-brand retailers to take up to 51 percent in a joint venture with a local firm, while multiple-brand retailers like Wal-Mart are limited to cash-and-carry, or wholesale, and franchise deals.

Opening up the fragmented industry, which is dominated by family-run shops, has triggered political concerns and protests by small shop owners who fear massive job losses.

Bharti Wal-Mart will open 10 to 15 cash-and-carry facilities over seven years, employing about 5,000 people. A typical store would occupy 50,000-100,000 square foot, dwarfing an average Indian store of about 200 square foot.

The first of the stores, which will sell groceries, consumer appliances and fruits and vegetables to retailers and small businesses, is slated to open in North India by the end of 2008.

Bharti will also separately own and manage a chain of retail stores, for which Wal-Mart will provide technical support. The Bharti Retail unit could also buy from the wholesale venture.

Wal-Mart would be a "natural choice" for a partner when India lifts restrictions on foreign direct investment in the sector, Bharti Retail Managing Director Rajan Mittal said, adding they had the option of using the Wal-Mart name for the retail stores.

Bharti has previously said its retail arm would spend $2.5 billion by 2015 to build multiple-format retail stores across India, including hypermarkets and supermarkets and occupy about 10 million sq. ft. of space and employ nearly 60,000 people.

Partnering With Local Suppliers

Bharti first announced plans for a joint venture in November last year, and Wal-Mart said in February it could partner Bharti on supply chain logistics and technology support.

In June, Mittal told Reuters India's limits on foreign direct investment in retail had slowed signing the deal with Wal-Mart.

A visit by senior Wal-Mart officials to India in February sparked protests from shop owners. An organisation of traders, hawkers, farmers and trade unions has called for protests against what it calls the "corporate hijack of retail and backdoor entry of Wal-Mart."

Retailers like Tesco and Carrefour have put their India plans on hold until regulation is clarified, amid growing concerns India could delay moves to lift restrictions.

Wal-Mart said on Monday it would source local products from local suppliers. Wal-Mart has sourced products including textiles and jewellery from India since 2001, and sourced goods worth more than $600 million directly from Indian suppliers in 2006.

"One of the key reasons for Wal-Mart's international success is that in every location where we operate, we are local," said Raj Jain, country president for Wal-Mart's India operations.

"We source local products from local suppliers that appeal to local tastes, needs and fashions," he said. Wal-Mart's move into India comes after the U.S. giant quit South Korea and as it struggles in Japan, and analysts say India will not be a cakewalk.

"Already, there are too many players coming in all at once, especially in the bigger cities, all targeting the same base of consumers," said Hemant Patel, an analyst at Enam Securities.

"There is no customer loyalty, either. An Indian consumer knows a Reliance or a Pantaloon better than Wal-Mart," he said, referring to top listed retailer Pantaloon Retail, which plans to expand to 30 million square foot by 2010/11.

India's Reliance Industries, the Tata group, the RPG group and the Aditya Birla Group are also expanding their retail business, a move that analysts say will further limit opportunities for foreign retailers who delay their entry.